Hi folks, can you give me your personal opinions on the following,
What are the advantages and disadvantages of Trading over spreadbetting, I know its illeagal to spreadbet in the USA so the question is mainly directed to European members.
Its something im interested in and have been demo trading for a few months now, reading books and attending various webinars to gain some knowledge.
tried demo trading forex on etoro and dont particularly like it, perhaps its the platform.
I do enjoy the thrill of scalping and daytrading on the spreadbet platforms though.
All your comment's are welcome and appreciated.
Spread betting offers great granularity, simplicity, low costs (in terms of platform), often a wide range of instruments in one place, and an ability to trade with very low amounts, among other things.
For a professional making good money, there is the tax advantage. For them, the benefits listed above are unlikely to be a consideration.
The main drawback is that you are not trading the real market. Prices can be slightly skewed, you have a conflict of interest with your broker and so on. There are also the endless accusations of skullduggery that arise from this. For what it's worth, in my opinion there is some truth to this, although it is somewhat overdone. Doubtless some companies are worse than others in this regard.
Other drawbacks, costs can be high in terms of the spread (the very low spreads offered are in my opinion an illusion, especially with regard to forex, and where they offer versions of real instruments the spreads are high), there is no DOM or volume (although you can't get the latter in forex, if that is your thing, in any case).
But the main concern is that the broker is on the other side of your trade. For a professional, I simply don't think you can get around this. If you plan on making very good money, unless they can hedge your exposure exactly you will cost them money. No business wants clients that cost them money.
The above applies to retail forex brokers as well.
DMA you trade in the real market. You can have total confidence if you trade something on a real exchange, like ES through the CME. Costs are low, spreads tight in liquid markets (1 tick in ES, for example). Your broker wants you to make money because that way you trade more (or bigger) and he gets more commission. You have volume, DMA etc.
But the main thing is confidence. You know you are not being cheated. You might not be cheated with the spread bet lot, but you will not know this for sure. Drawbacks include having to trade full contracts, but that is only a disadvantage if you are under-capitalised. Which you should not be under any circumstances.
For the serious person therefore, there is no disadvantage to DMA other than profits are taxable.
There is now a hybrid option, DMA spread betting. Technically and legally you are spread betting, but actually your orders go direct to the market and are simply routed through the broker. So again, you can be confident, which is crucial. Your broker makes money from commissions, not losses. You trade the actual market at the actual price, not a version of it.
Note that not many companies actually offer this. The key is that all orders are automatically placed directly in the market. One well-known company offers 'DMA functionality', which is not the same thing.
On the face of it, DMA spread betting might seem an ideal solution. Tax free and transparent (some people disagree that it is tax free, but leave that aside for the moment). However, it might not be the case.
One DMA SB company offers no platform charge, will waive data fees if you ask, and charge a commission of $7.50 per round trip for eminis. Say you trade in total 200 contracts a month, that's $1,500 in commissions.
A similar set up with a well known futures broker - which essentially gives you the exact same thing - has no fees, and $4.52 per RT.
That's $904 a month.
So the DMA SB cost is high. The difference will get larger the more you trade - costs per trade will of course come down with both if you trade bigger size, but still you need to make quite a bit more for the tax advantage of SB to kick in.
In summary:
SB is fine for punting with smaller stakes. Some companies are terrible even for this (by repute) but others not really. Just realise you're getting wider spreads, or skewed quotes, or designer slippage or whatever, and if you ever start making real money you might start getting problems.
DMA is perfect in trading terms (if you are serious, adequately capitalised, and have done your homework), but whichever f ucking dimwit is currently wearing out the chair in Number 11 is going to steal some of your money.
DMA SB is fine in trading terms, but costs are appreciably higher in terms of larger commissions (and this can have an effect in trading terms, not just on overall profitability, depending on how you trade). On the other hand, what you finds, you keeps.
Hope that helps.
